Mastering the Mysteries of File and Suspend

When and how you claim your Social Security benefit impact the amount you receive

Could file and suspend be beneficial and benefit-enhancing? Learn the facts. — Adam Voorhes

En español | Q: My wife and I are trying to decide when to take our Social Security benefits and we keep hearing about a strategy called "file and suspend." What is it and could it help us increase the amount of money we get?

A: Yes, it could, depending on your circumstances. File and suspend is a strategy that can raise benefits for qualifying couples through the use of a combination of spousal benefits and what Social Security calls delayed retirement credits. At least one member of the couple must have reached full retirement age, currently 66 for people born between 1943 and 1954.

The file and suspend rule was added to Social Security in 2000 as part of the Senior Citizens Freedom to Work Act to help couples plan their retirements. But it did not attract much public attention until a few years ago, when academics and financial planners began to write a flurry of articles about this and other new benefit-enhancing strategies.

A: The rules are very complicated, so let's use an example, John and Mary, a married couple. Both are 66, which is their full retirement age. Mary is retired; John plans to keep working until he is 70.

At 66, John, who had a bigger income than Mary over the course of his career, files for his full retirement benefits of $2,000 a month, but immediately suspends payment. By doing that, he will begin accruing delayed retirement credits: For each year that he keeps his payments in suspension, they'll be 8 percent higher when he does take them. The credits top out at age 70. Since John's basic retirement benefit at age 66 was $2,000, his new payment if he waits until 70 to collect will be about $2,640, plus any cost-of-living increases.

When John filed for his benefits, he automatically activated Mary's ability to apply for a spousal benefit. (Mary can't file until John does.) Social Security rules provide that a spouse, whether the person ever worked, is entitled to a benefit equal to up to one-half of the other spouse's retirement benefit.So Mary can collect $1,000 a month. But something else will also be happening: because Mary has reached her own full retirement age but is not taking her own retirement benefit, she will also accrue delayed retirement credits that will boost her own retirement benefit when she applies for it in the future.

AARP Discounts

So, as Mary and John await the day when they activate their higher retirement benefits, they have a $12,000 a year cushion in the form of Mary's spousal benefit. Note that if Mary had been at less than full retirement age but 62 or older, she still could have begun a spousal benefit based on her husband's move to file and suspend, assuming that that benefit would be larger than what she was due on her own work record. However, the spousal payment would have been less than the full 50 percent. And she would be locking in a discounted rate forever, whether for the spousal benefit or her own work record benefits.

File and suspend can also have long-lasting positive effects. For instance, if John were to die at 72, his decision to delay taking his Social Security until 70 will have had a very favorable impact on Mary's survivor benefit. She will receive John's full monthly payment, including his delayed retirement credits.

Q: But isn't it a gamble to put off taking benefits?

A: Yes. You should probably consider file and suspend only if the person suspending is healthy. When John suspends his benefits at 66, he is basically making a bet in favor of longevity. But if he dies at 68, he will have missed out on two years of retirement benefits that he could have collected.

Retirees should review their personal finances carefully to make sure this is best for their particular case. Before suspending benefits, they should make sure they will have enough income to pay their living expenses while they wait for their higher payments in the future. The spousal benefit helps.

Q: If we're both at full retirement age, can both of us file and suspend?

A: No. Only one is allowed. In other words, Social Security won't let both members of a couple simultaneously collect a spousal benefit off the other spouse's suspended application.

Q: If we file and suspend, can we drop out later if we change our minds?

A: Yes. Social Security provides escape hatches for that. For instance, at 68, John could cancel his request to suspend his benefits and get a lump sum payment of the money he did not get from 66 to 68. Going forward, he would collect the $2,000 monthly payment that he'd been due at 66. Or, he could forgo the lump sum and begin benefits at the higher level that was brought on by two years of delayed retirement credits.

A: Yes. Premiums for Medicare Part B are routinely deducted from Social Security checks. But once you've suspended those checks, you will be billed for your premiums, by the Centers for Medicare and Medicaid Services (CMS). If you don't pay those bills, you may lose your Part B coverage, a potentially disastrous outcome.

If you're receiving Supplemental Security Income (SSI) benefits, suspending your Social Security retirement payments will make you ineligible for SSI.

A:There's no single way. Social Security's only advice is: "You do not have to sign your request to suspend benefit payments. You may ask us orally or in writing." That may be the simplest rule of all.